Riverview, FL · Member since 2018 · 15 posts · 3 votes
So I have excellent credit, and looking into houses for around 180-200K in Florida, in a military community. My plan was to rehab small cosmetic fixes then refinance in about a year because I will be living in it, the bank is saying I should qualify for a loan that basically pays for the whole down payment, anyways I was listening to a recent podcast on BRRR and they said it's usually with a personal line of credit, so is it possible to BRRR with first time home buyers program?
Rental Property Investor · St. Petersburg, FL · Member since 2017 · 3k+ posts · 4k+ votes
7y
@Ravonne Evans it's possible, but may be difficult for you, based on what it sounds like your plan is. Buying wont be a problem... you will be an owner occupant so that will allow you to get conventional financing.
The refinance is what may be your problem. Its unlikely that you'll be able to build 20% - 30% equity with just cosmetic fixes, so your refinance won't allow you to pull all of your money back out.
Mortgage Broker · Dallas, TX · Member since 2017 · 657 posts · 275 votes
7y
@Ravonne Evans hello! First time home buyer programs are not for investment purposes. They only way you could technically use it is if you were planning on living in it initially and house hacking. The thing with this is that the home must pass an appraisal, so it can't be too big of a rehab. But like you said you are just looking to upgrade cosmetics. Normally these programs do not allow 2-4 units either, only single family residence homes.
Rental Property Investor · St. Petersburg, FL · Member since 2017 · 3k+ posts · 4k+ votes
7y
@Ravonne Evans it's possible, but may be difficult for you, based on what it sounds like your plan is. Buying wont be a problem... you will be an owner occupant so that will allow you to get conventional financing.
The refinance is what may be your problem. Its unlikely that you'll be able to build 20% - 30% equity with just cosmetic fixes, so your refinance won't allow you to pull all of your money back out.
If you buy a single family home for $200k and then invest $10k in cosmetic updates, in order to refinance out $210k it will need to appraise for $262,500-300,000 depending on the LTV (loan to value) ratio of the loan. This seems unlikely.
You didn't mention what rent rates you would expect. Would market rate rents give you positive cash-flow?
Riverview, FL · Member since 2018 · 15 posts · 3 votes
7y
@Kevin Sobilo
Dang! I believe the max I could get for rent would be around $1600 so I don’t know if the return would be so much worth it. There are a lot of homes that need a lot of work so it would be done within a year to a year and a half, new paint, new appliances, cabinets, flooring, etc.
So what y'all are saying is I would need to make the LTV go up by 20-30% to be worth it?
Realtor · Hanover Twp, PA · Member since 2018 · 3k+ posts · 3k+ votes
7y
@Ravonne Evans, yes you need to improve the value substantially for it to make sense.
I explain it to people as 20 + 20 = 60... So, if I buy a distressed house for $20k then put another $20k into it during a rehab and make it worth $60k when its done, then I can refinance out maybe $45-48k which is MORE than the $40k I invested in it.
That gives me money to go buy another property and also to have a cash-flowing rental.
In my area, those are realistic numbers and I would rent a house like that for $750-950.
Also, in your example of buying a $200k house that would rent for $1600, that probably would not cash-flow well. Bigger pockets has some calculators on the site here that you can use to analyze these things. Go on YouTube and watch some of the bigger pockets videos about using these calculators.
Rental Property Investor · Sacramento, CA · Member since 2015 · 80 posts · 43 votes
7y
Hi @Ravonne Evans. Although what everyone above said is correct it will not always be the case. You definitely want the cash flow to make sense after all expenses.
As far as getting all your money out on the refi or the deal is not worth it... I disagree. Especially when you are starting out. If you purchase a property for $70k and put $10k in and it is worth say $100k after repairs. You are able to pull out $75k after spending $80k. That is not bad. Even with a more expensive property if you have $10-15k still in the property that is not a deal breaker in my opinion. Big picture is you spent $15k on a property and are getting good cash flow and money out to do it again.
Of course numbers have to make sense for cash flow and the appraisal can be unpredictable. If you put $100k into a house and get $85k cash out to re-invest with good cash flow that's a win in my opinion. Do not pass up on a good deal to get a perfect deal. Once again cash flow, ARV and other factors must be good though.
Riverview, FL · Member since 2018 · 15 posts · 3 votes
7y
@Carl Crump
Thank you! Yeah that makes sense, I’m wondering if I should continue with a first time home buyers program with intention on renting in the future and even if I can’t refinance I can stack cash for another deal and have a rental while doing it?
Rental Property Investor · Sacramento, CA · Member since 2015 · 80 posts · 43 votes
7y
@Ravonne Evans. That definitely depends on the situation and your goals. While you are living there you will be paying a mortgage which could actually enable you to save less money. Of course after the property is ready to rent it will have some equity to pull out and then the rental income.
Another option is to get a duplex as that lets you rent and save at the same time. If this is in your price range it would work great. Using first time home buyers program is definitely a good idea as you only have to put 3% down. Just make sure the deal makes sense as far as future incoming rent, equity, and other factors for your situation.
Riverview, FL · Member since 2018 · 15 posts · 3 votes
7y
Thank you everyone for the input, I spoke with my banker and the loan I am applying for is not a first time home buyers, it is a loan anyone can apply for. It is a 0% down loan that I qualify for, so I am just trying to see how much I qualify for and see what options are available. The market I am going to has homes that are extremely outdated and have a lot of potential, so if I could find a duplex that would be great but if not my goal is single family home and adding value!
...it is a loan anyone can apply for. It is a 0% down loan...
Care to elaborate on a 0% down bank loan that anyone can apply for? Or do you mean anyone in the military community? VA loan or Navy Federal Credit Union, perhaps?
If you're set on pursuing a BRRRR and are searching for value add opportunities, you may want to consider some loan options that allow you to wrap the cost of a renovation into the loan. You said that the market in which you are interested has homes which are extremely outdated and have a lot of potential, so if you're attempt to add a lot of value, it may be more worthwhile to apply for something like an FHA 203k loan or (if you or a spouse are military) a VA loan combined with the VA rehab program.
If you just get a 0% down loan on an extremely outdated home, you could still be looking at substantial out of pocket repairs (not to mention that many banks are hesitant to loan on homes which need work). An FHA 203k is typically 3.5% down if I'm not mistaken, but the bank can finance the renovation if approved. So say you buy a house for 200k with 0% down, and you need to put in 50k of renovation work to complete the BRRRR. That's 50k you have to come up with out of pocket to finish the project, making the total cost 250k with the bank only financing 200k of it. An FHA 203k requires a 3.5% down payment, but 3.5% of the 250k project total is only $8750... This is a circumstance in which 3.5% down can end up actually costing less out of pocket than 0% down.
Just something to consider. Best of luck with whatever you choose to do.
Riverview, FL · Member since 2018 · 15 posts · 3 votes
7y
@Alexander Valarus
So I can not elaborate until I figure out more about the loan I am doing it from Texas and haven’t yet gotten to Florida. I am not military but the area is mostly military, small area. My goal is to slowly fix and rehab, I plan to live in the home for 1-2 years, I am not too worried about the return right now my main focus is getting a first home under my belt to learn as much as I can, hands on and continue learning and saving money vs saving and throwing my money into a rental. I do plan to pay out of pocket on rehabbing over time. Honestly, just seeing if I get pre approved for a loan and giving myself 3-6 months to look for a property worth investing in.
Riverview, FL · Member since 2018 · 15 posts · 3 votes
7y
@Alexander Valarus
I also asked about the option of wrapping renovation costs into loan and she said that is no longer an option, she did it in the past with her home but they don’t do that anymore 🤷🏼♀️
Real Estate Agent · Southington, CT · Member since 2008 · 5k+ posts · 3k+ votes
7y
@Ravonne Evans You would likely have to buy a property that needs more than cosmetic fixes in order for a refinance to make sense.
With that said, if you use a low money down regular FHA or FHA 203k loan in order to purchase it will not take you long to get the money back that you put down once the property is performing for you.
Rental Property Investor · Allentown PA, United States · Member since 2016 · 567 posts · 442 votes
7y
@Ravonne Evans my recommendation would be, if you are looking for something that will be a future rental, it's going to be hard to make that work on a SFR thats 200k+ and only may rent for 1600. If you want a future rental, I would either consider and small multi with high rent to purchase, or going for a lower cost SFR.
If you are sure you want to rehab and hope to add a significant amount of equity into the house, I would look into the "live-in flip" strategy of buying a house that needs work, completing the rehab(possibly with a 203k loan) and either enjoying a nice house you got for a bargain or selling it tax free after living there for at least 2 years.